Polymarket: The Financialization Revolution of Prediction Markets— Information Pricing, Regulatory Games, and the Path to Mainstreaming
- FOFA
- 4 days ago
- 4 min read
Abstract
Prediction markets have long been viewed as a gray area between financial markets and gambling. However, with the maturation of blockchain technology and the entry of Wall Street capital, Polymarket has gradually transitioned from a fringe crypto product into an event-driven market with institutional potential. This article evaluates whether Polymarket constitutes a new asset class from four perspectives: its business model, regulatory history, capital structure, and academic research.
1. Platform Background and Founding Context
Founded by Shayne Coplan in 2020, Polymarket is a blockchain-based prediction market platform. Its design allows users to trade on the outcomes of real-world events, utilizing smart contracts for matching and settlement.
Coplan was inspired by decentralized information theory and the concept of futarchy (governance by prediction markets), viewing prediction markets as an information aggregation tool.
The core mechanism of the platform is:
Price = Probability
According to official documentation, the market price is typically the midpoint of the bid-ask spread, or the last traded price when the spread is too wide.
This design makes the contract price directly correspond to the market consensus probability; for example, $0.70 represents a 70% probability.
2. Regulatory Conflicts and Compliance Turning Points
Polymarket's development has not been entirely smooth.
In January 2022, the U.S. Commodity Futures Trading Commission (CFTC) ruled that it violated the Commodity Exchange Act, imposing a $1.4 million fine and ordering the closure of non-compliant markets.
Subsequently, the platform restricted the participation of U.S. users and underwent business restructuring.
In July 2025, the U.S. Department of Justice (DOJ) and the CFTC concluded their investigations into Polymarket without filing further charges.
This turning point is seen as a crucial opportunity for the platform to return to the U.S. market.
3. Wall Street's Entry: ICE's Strategic Investment
On October 7, 2025, Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange, announced it would invest up to $2 billion to acquire an approximate 20% stake in the platform.
Multiple mainstream media reports indicate that this move symbolizes Wall Street's official embrace of prediction markets.
Forbes reported that this investment values Polymarket at over $8 billion.
ICE stated that it will become the global distributor of Polymarket's event data in the future and collaborate to drive tokenization innovation.
This marks the gradual transition of prediction markets from crypto-native products to institutional financial integration.
4. Information Efficiency and Academic Observations
Academic research shows that, in theory, the sum of the prices of all possible outcomes in a prediction market should equal 1.
However, recent studies also point out a persistent price deviation of 2–4% across platforms, indicating that the market may not be perfectly efficient.
Another study covering hundreds of millions of transactions found that the "calibration" of prediction markets depends heavily on market structure and event type.
This illustrates:
Prediction markets are not perfect oracles, but rather dynamic systems highly dependent on liquidity and information quality.
5. Analysis of Investment Attributes
1️⃣ Differences from Gambling
The expected value in gambling is set by the house and is inevitably negative in the long run. Prediction markets, on the other hand, are probability games among participants.
Its expected value (EV) depends on:
EV=(Subjective Probability−Market Probability)×PayoffEV = (\text{Subjective Probability} - \text{Market Probability}) \times \text{Payoff}EV=(Subjective Probability−Market Probability)×Payoff
If investors lack an informational advantage, their behavior is closer to a zero-sum gamble.
2️⃣ Similarities to Traditional Finance
Polymarket is essentially an "event-driven derivatives" market. Similar to the options market, its value is tied to future events.
ICE's entry shows that mainstream financial institutions already view it as a potential tool for data and risk pricing.
3️⃣ Structural Risks
Most contracts are binary settlements (0 or 1). This leads to high volatility and a high risk of total loss.
Furthermore, the platform has faced regulatory and compliance challenges, showing that policy risks cannot be ignored.
6. Conclusion: The Birth of a New Asset Class?
Polymarket's development unfolds in three stages:
Crypto Experiment (2020–2021)
Regulatory Shock (2022)
Institutional Integration (Post-2025)
ICE's $2 billion investment has propelled it from a fringe product into the mainstream financial architecture.
However, at its core, it remains a zero-sum probability trading market. It does not create cash flow, nor does it generate endogenous value.
Its source of value lies solely in:
The ability to price future uncertainty.
If the regulatory framework becomes clearer and liquidity continues to expand, prediction markets could become an important tool for macro hedging and political risk management. If not, they may remain in the highly volatile realm of crypto speculation.
The future of Polymarket depends on whether institutional finance truly accepts "probability" as a tradable asset.
References
Coplan, S. (2020). Founder information. (en.wikipedia.org)
CFTC Press Release No. 8478-22 (2022). (cftc.gov)
CoinDesk (2025). DOJ & CFTC drop investigations. (coindesk.com)
Axios (Oct 7, 2025). ICE invests up to $2B in Polymarket. (axios.com)
Forbes (Oct 7, 2025). ICE investment valuation report. (forbes.com)
Polymarket Documentation. Price mechanism. (docs.polymarket.com)
ArXiv (2025–2026). Prediction market efficiency research. (arxiv.org)
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